Broker Name: UOB Kay Hian
Date of Report: 29 May 2025

RHB Bank 1Q25 Results: Downgraded to Hold as Softer Growth and Weaker Non-Interest Income Weigh on Outlook

Overview: RHB Bank’s 1Q25 Performance and Investment Case

RHB Bank Berhad, Malaysia’s fifth largest fully integrated financial services group, has released its 1Q25 results, revealing a mixed performance that has prompted UOB Kay Hian to downgrade the stock from Buy to Hold. The downgrade comes amid softer-than-expected growth, particularly in non-interest income, and a slight downward revision in earnings forecasts. Despite these headwinds, RHB’s capital strength and attractive dividend yield continue to offer support for investors.

Stock Snapshot

• Share Price: RM6.67
• Target Price: RM7.30 (previously RM7.66)
• Upside: +9.4%
• Market Cap: RM29.0bn (US\$6.88bn)
• Major Shareholders: EPF (39.0%), OSK Holdings (10.3%)
• FY25 NAV/Share: RM7.36
• FY25 CET1 Ratio: 17.44%
• Dividend Yield (FY25F): 7.1%

Key Takeaways from 1Q25 Results

• Net Profit: RM750m (+2.7% yoy, -10.2% qoq), representing 22–23% of full-year forecasts.
• Drag from Non-Interest Income: Down 20.2% yoy and 24.4% qoq to RM561m, mainly due to weaker treasury and forex income after a strong 4Q24.
• Pre-Provision Operating Profit (PPOP): Fell 4.6% yoy and 4.9% qoq, highlighting revenue compression in non-interest lines, though cost discipline helped offset some weakness.
• Net Interest Margin (NIM): Stable at 1.84%, with domestic NIM improving slightly to 1.86% but offset by lower margins in Singapore. Management expects a modest NIM boost from the SRR cut but anticipates potential compressions if overnight policy rate (OPR) cuts occur in 2H25.
• Loan Growth: Moderated to 6.2% yoy (vs 6.9% in 2024), still ahead of industry. Mortgages (+8.5%), auto loans (+10.9%), corporate loans (+9.0%), and commercial banking (+24.9%) led the way.
• Management’s 2025 Loan Growth Target: Revised down to 5–6% (from 6–7%) amid a softer macro outlook. UOBKH’s forecast now stands at 5.5%.
• Asset Quality: Gross impaired loan (GIL) ratio edged up to 1.50% due to higher impairments in the domestic SME segment and a single Singapore corporate account, for which provisions are adequate.
• Net Credit Cost: Increased to 17bp in 1Q25, normalizing from 3bp in 4Q24 and within management’s 15–20bp guidance.
• Cost/Income Ratio (CIR): 47.4% for 1Q25, reflecting the impact of weaker income.

Financial Highlights and Key Metrics

Detailed 1Q25 Profit & Loss Breakdown

2025 Outlook and Guidance

RHB Bank’s management has set the following key guidance for 2025:

• Loan Growth: 5–6%
• Net Credit Cost: 15–20bp
• ROE: 10.4–10.8%
• GIL Ratio: 1.40–1.50%
• CIR: Less than 45.5–46.0%
• NIM: 1.86–1.90%

Earnings Revision and Valuation

• 2025 earnings forecast cut by 5%, with 2026/27 forecasts cut by 3% on lower loan growth, NIM pressure, and weaker trading income.
• Target price revised to RM7.30 (from RM7.66), reflecting a 0.95x 2025 price-to-book (PBV) and 9.5% ROE assumption.
• Despite downgrading to Hold, the stock’s outperformance against the KLCI Finance Index (+4% YTD vs sector’s -6%) and attractive dividend (yielding 7.1% for FY25F) underpin its appeal for yield-seeking investors.

ESG Initiatives and Updates

Environmental:

• Committed RM3.3bn in green loans as of June 2021, with 20% allocated to renewable energy projects.
• Targeting RM5bn in green financing by 2025.
• Zero new coal financing since 2022, with no funding for new thermal coal mines or coal-fired power plants.

Social:

• Board gender diversity at 30%; 26.1% for top and senior management as of June 2021.
• Over RM2m allocated to the RHB X-Cel scholarship programme, benefiting 1,400 underprivileged (B40) students annually.

Governance:

• Independent non-executive directors comprise 60% of the Board as of March 2021, up from 55% a year earlier.

Key Financial Ratios at a Glance

Conclusion: Balanced Risk-Reward with a Defensive Profile

While RHB Bank’s near-term earnings outlook has softened with slower loan growth and weaker non-interest income, the group remains well-capitalized with a robust CET1 ratio and continues to offer one of the most attractive dividend yields in the sector. Investors may find the current risk-reward profile balanced, making RHB suitable for those seeking yield and defensive positioning in the Malaysian banking space. The downgrade to Hold reflects share price outperformance and a normalization of valuation multiples, but the underlying fundamentals remain sound.

Analyst Contact

Keith Wee Teck Keong +603 2147 1981 keithwee@uobkayhian.com